Harvey spending cash it doesn't have

Chicago Tribune watchdog reporters Joe Mahr and Joseph Ryan describe the current financial and economic woes of the city of Harvey.

Chicago Tribune watchdog reporters Joe Mahr and Joseph Ryan describe the current financial and economic woes of the city of Harvey.

Joseph Ryan, Joe Mahr and Matthew Walberg, Tribune reporters

Even as Harvey struggles to pay its bills and fund public safety, the south suburb has engaged in questionable uses of tax dollars — including a lucrative deal tied to the mayor's son to run Facebook and Twitter accounts, the Tribune has learned.

That firm has been compensated $88,000 so far for work that one expert said wasn't worth a tenth of what the city paid. The work showedone successful metric: a Twitter following that recently skyrocketed from two dozen to nearly 1,200 people. But that appears based on fake accounts, experts said.

Then there are the city aldermen's five-figure expense accounts, which the Tribune found are used at times to pay relatives, including a company given $325 an hour to plow snow. There's also a financial consulting deal for a neighboring former mayor convicted of tax fraud.

Amid those spending revelations,the Tribune has learnedthatfederal investigators are probing one of the city's biggest insider deals — a botched $10 million hotel development that the newspaper exposed eight months ago.

The spending is under scrutiny in the wake of Harvey's comptroller — himself involved in the hotel deal — recently declaring that without major budget changes, "We will not get through to next Christmas."

Last month the Tribune published an investigative series that showed how Harvey's high violent crime and subpar policing had left it arguably the most lawless place in the region, leaving victims fighting for justice. The series showed how outside agencies at all levels of government had done little to intervene despite red flags, including a failure to force the city to complete yearly financial audits, as state law requires.

The latest findings illustrate how a suburb can spend far beyond its means in a state that does comparatively little to ensure cities and villages protect taxpayer money.

Harvey residents already face a relatively high effective property tax rate, according to one study, with taxes likely to go only higher. That frustrates some residents and business owners, such as Christopher Clark, who questioned why the state didn't catch the problems.

"If we had oversight, we wouldn't even have to worry about a lot of this stuff," said Clark, a Harvey lawyer. "We deserve much better."

Mystery followers

Harvey officials have long stressed the need to spark development in a place decimated by industrial decline and left with high poverty and swaths of abandoned homes. An out-of-state firm claimed last year that it had a solution: tapping into the world of Internet social media.

The proposal from Lola Grand pitched social media's "return on investment" as "generally 2 to 3,000 percent," adding: "You can only imagine how greatly the City of Harvey will benefit."

For an $8,000 "set up" fee, Lola Grand said it could provide "a new website, new Facebook, Twitter accounts, and 2 blogs." The firm then said it would bill monthly for "maintenance" and "web content."

Left out of the proposal was a mention of who ran the firm. Records separately obtained by the Tribune show that the mayor's namesake son — Eric Kellogg II — filed paperwork to incorporate it in New York in 2009, registered its website to a Brooklyn apartment and is listed on LinkedIn as its managing director.

The Tribune found sparse evidence that the proposal's benchmarks had been met, including:

•No new website. A review of Internet archives shows the city hasn't redesigned its website, cityofharvey.org, in at least seven years. This week, for days, error codes crowded out much of the text.

•A blog with just two posts. One post announced the blog in October and the other, a day later, reminded residents of a fall festival.

•A YouTube channel with four videos. All prominently feature the mayor. All are more than 5 months old.

•Relatively infrequent posts on Facebook or Twitter. Accounts for each were started in May, but gaps between posts averaged three to four days.

As of last month, the Twitter feed had just 25 followers seeking updates to its posts. After the Tribune asked Harvey about Lola Grand, that number jumped to nearly 1,200. Social media experts said the new followers had telltale signs of being fake accounts bought from online brokers, who sell bulk sets of "followers" to wannabe celebrities, politicians or entrepreneurs trying to appear popular.

For example, one of Harvey's new Twitter followers was Lieni Alves, who hasn't posted a Tweet in 19 months, and then it was in Portuguese. The account follows more than 1,700 people besides Harvey, including porn actresses, a Christian music company, Brazil's president and a host of people who tweet in Arabic and Turkish.

StatusPeople, a London-based firm, created an oft-cited algorithm to count suspect accounts. That algorithm last week estimated that 88 percent of Harvey's Twitter followers were fakes, a figure called "very unusual" by StatusPeople's founder, Rob Waller.

"Even the large celeb accounts don't have fake numbers anywhere near that high," Waller said in an email.

'Baffled'

Lola Grand declined to say how it boosted Twitter followers. It said it designed a website but is waiting for Harvey to review it before launching that and the blogs. It said its other social media efforts have directed "hundreds" of residents' requests to Harvey officials. The firm and the mayor's office touted additional behind-the-scenes work, such as "brand development" and "24/7 monitoring of social media channels."

But when the Tribune asked Harveyfor internal assessments or reviews of the firm's work, the city produced none. It did provide two images of home pages for a potential new website. Both had the same simple layout but different featured pictures: one of the mayor gazing into the distance and the other of him holding a small child.

Lola Grand offered no records to document its $88,000 in work, except websites already seen by the Tribune and a link to a separate Facebook page just for the mayor, which Lola Grand said was at "full capacity."

Lola Grand justified its fees by saying other firms would charge "far more" for comparable work. But that's not the view of one professor who specializes in social media.

Ohio University professor Karen Riggs reviewed the firm's proposal and online work compiled by the Tribune. She criticized what she considered excessive fees, an abandoned blog, "semiprofessional" YouTube videos and posts to Facebook and Twitter that were sporadic, with little engagement — and a focus on promoting the mayor.

"I'm baffled as to what $8,000 a month — even $8,000 once — could have bought with the results I see here," she said in an email.

The Tribune found other suburbs that post far more often to social media accounts while spending less. Lombard, for example, averages nearly three times as many Twitter and Facebook posts. A village employee spends about 10 percent of her workday on social media and the village website, equating to about $600a month in salary and benefits, said Village Manager Scott Niehaus.

As for appearances of nepotism, Eric Kellogg II, in a brief interview this week, said the deal was not improper because he manages artists for Lola Grand, not social media. But he declined to name who did the social media work or say how the firm got the deal.

His father, the mayor, also would not say how his son's firm got the deal — adding to more questions of nepotism in his administration. There were also nepotism criticisms at the mayor's former job as a local school superintendent.

Just as Lola Grand was starting its deal, the mayor got a $240,000 payout approved by a school board that included two relatives. As allowed by law, the district then paid the state $144,000 so Kellogg could collect a $113,000 teacher pension at age 57, on top of his $58,000 compensation as mayor.

After the Lola Grand deal was cut, the mayor's administration pushed the City Council to pay the firm's monthly invoices. The payments stopped after one alderman, Shirley Drewenski, questioned the matter at a council meeting late last month.

After the meeting, the Tribune asked the city's two spokespeople about the company. Both are in charge of reaching out to the community and presenting the city in a positive light. Both told the Tribune at the time that they had never heard of Lola Grand.

More insider deals

City Council members control separate pots of public cash to tap at their own discretion, and the Tribune found conflicts of interest there too.

In an unusual arrangement, each of the six aldermen can direct the expenditure of more than $80,000 a year from special expense accounts, all with relatively few rules and little oversight. The Tribune reviewed about three years worth of records that involved spending on a range of items, from gift cards and fruit baskets to huge turkey giveaways and office rent for aldermen.

The Tribune found no indication in the records that aldermen shopped around for the best price and little justification that the spending was for the public good.

In some cases, the Tribune found aldermen using their expense funds to pay relatives as assistants. The accounts for Ald. Michael Bowens have been used to pay nearly $100,000 over about three years to his son's firm to clean up lots, cut grass and plow snow.

"The residents don't seem to mind because they get the job done," Bowens said, defending the arrangement. "They do great work."

The company's brief invoices don't always paint a clear picture of the work done. One billed $325 an hour for 55 hours of work after the 2011 blizzard. The invoice says the company removed "24 inches of snow" by snowplowing throughout the city and shoveling walks to the tune of $17,875.

That invoice didn't specify the type of equipment or amount of salt used, if any.

'Distress'

The biggest insider deal in recent years involves the man at the heart of Harvey's finances: Joseph Letke, long a go-to financial adviser for several south suburbs.

The U.S. Securities and Exchange Commission subpoenaed Harvey in late October, the Tribune has learned, for records that would explain its actions — and the role of Letke's firm — in a development deal that left the city owing millions on bonds for a hotel that is now half-gutted and in foreclosure. An SEC official declined comment.

The Tribune previously reported that the city directed Letke's firm to receive more than $500,000 for consulting on the bonds while Letke was also working with the developer. Letke has told the Tribune he did nothing wrong.

As the appointed city comptroller, he is now making pitches to stem the suburb's spiraling finances.

At a recent, sparsely attended committee meeting in Harvey, Letke told aldermen that the suburb was again on pace to spend millions more than it took in from taxes. That follows years of the suburb reselling Chicago water to residents and other suburbs without paying for it — millions of dollars that Chicago has sued to get back.

To pay offChicago, Letke floated a plan to borrow even more money, likely at a high interest rate since Harvey's credit rating was last listed in "junk" status. Letke also raised the idea of disbanding the Fire Department and merging it with those of other suburbs, a move that would likely raise property taxes by creating a new taxing district.

At that meeting, Letke held up what he said was the mayor's "financial distress recovery plan," but he would not outline what was in it.

That title stands in stark contrast to the repeated times, as recently as last month, that Kellogg downplayed financial problems.

The plan didn't come up a week later at a full City Council meeting, which took on a business-as-usual tenor. Without delving into the city's dire financial state, the council took a routine vote to approve paying a list of bills.

Lola Grand wasn't on the list this time, but another relatively new firm was: Real Municipal Solutions.

The consulting firm was incorporated about five months ago by former Dixmoor Mayor Donald Luster, who was forced to leave office in 2004 after being convicted of tax and unemployment benefits violations. He told the Tribune he advises Harvey on "revenue enhancement" and "leadership."

His firm billed the city $10,500.

At the meeting, aldermen voted to pay it, along with other bills, without question.